ACCA P2 Dec 2007 Q 4 International conceptual framework

The question 4 in ACCA P2 exam tends to be easier than 2 and 3 in section B. It is usually a current issues question. To be highly scored on this question, you need to plan your answer, use the headings and short paragraphs for every sensible point.

Question 4 December 2007

International conceptual framework

25 marks * 1,8 minutes = 45 minutes.
15 minutes to read&understand question requirements and plan the answer
25 minutes for write 25 reasonable points
5 minutes to revise the completness of your answer under plan

You can download the past exam papers www.accaglobal.com

Q4 The IASB has begun a joint project to revisit its conceptual framework for financial accounting and reporting. The goals of the existing frameworks and converge them into a common framework.

Required:
a) Discuss why there is a need to develop an agreed international conceptual framework and the extent to which an agreed international conceptual framework can be used to resolve practical accounting issues. (13 marks)

b) Discuss the key issues which will need to be addressed determining the basic components of an agreed international conceptual framework. (10 marks)

Appropriateness and quality of dicussion (2 marks)

Q4 (a) 13 marks

(1) Convergence

Firstly, it is wedely accepted that a single set of standards appliable across the whole globe.

(2) Investors

The main drivers of convergence is the investors in the market. Thay want to be able to look at American and Russian financial statements and make comparisons.

(3) Preparers

Preparers also want one set of standards. Thus, that one set of financial statements can be produced for companies with multiple quotations.

(4) Existing framework

The existing framework is adequate. It is not perfect, but there is no need to start it again.

(5) The US

This process of convergence is essentially the convergence of the IASB and the US ASB. The IASB argue that once the US adopt IFRS, the rest of the world will follow them.

(6) Prescriptive reporting

The US has had a system of rules based prescriptive accounting in the past. Now, they are moving to conceptual accounting.

(7) Politics

To make the process of convergence less painful for the US ASB, the IASB has essentially left their old framework. The new framework will be created.

(8) Purpose of a framework

The purpose of accounting framework is to enable standard setters to develop standards which are consistent with one another.

(9) IASB framework

The IASB framework are founded on the concept of the asset/liability.

(10) Development of framework

IFRS 2 was developped upon the framework. This measures share based payments cost as the difference between the opening and closing share based payments liability.

(11) Practical issues

The frawework is used by the IASB and not by accountants in practice.

(12) Standards

The accountans should use the existing IFRS to solve practical issues.

(13) Exception

The only exception if this rule is if an accountant is faced by a problem for which there is not IFRS. Then that accountant would go back to the framework.

Q4 (b) 10 marks

(1) Components

The new framework under development is based on existing framework.

(2) Chapters

The existing framework is based on seven chapters and the development project will have to decide what will go into each of seven new chapters.

OCERMEP

O - Objectives
C - Characteristics
E - Elements
R - Recognition
M - Measurement
E - Entity
P - Presentation

(3) Objectives

The chapter considers who the financial statements for (Is it  shareholders or wider users)

(4) Characteristcs

This chapter considers the qualitative characteristics ( in other words - concepts)

(5) Elements

This chapter reassess the key elements of assets and liabilities

(6) Recognition

This chapter needs to consider the points at wich you recognise and derecognise assats and liabilities

(7) Measurements

This chapter must consider how asstes and liabilities are measured

(8) Entity

This chapter has to revisit the concept of the group

(9) Presentation

The final chapter must consider the best methods of communicating information on position, performance and cash flow.

(10) Conclusion

In fact, the development so far has seen that the new framework will eventually look almost identical to the existing framework.


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